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World Oil Transit Chokepoints

By MarEx 2014-11-15 01:24:00

World chokepoints for maritime transit of oil are a critical part of global energy security. About 63 percent of the world's oil production moves on maritime routes. The Strait of Hormuz and the Strait of Malacca are the world's most important strategic chokepoints by volume of oil transit.

The U.S. Energy Information Administration (EIA) defines world oil chokepoints as narrow channels along widely-used global sea routes, some so narrow that restrictions are placed on the size of the vessel that can navigate through them. In 2013, total world petroleum and other liquids production was about 90.1 million barrels per day (bbl/d). EIA estimates that about 63 percent of this amount (56.5 million bbl/d) traveled via seaborne trade. Oil tankers accounted for 30 percent of the world's shipping by deadweight tonnage in 2013, according to data from the United Nations Conference on Trade and Development (UNCTAD).

International energy markets depend on reliable transport routes. Blocking a chokepoint, even temporarily, can lead to substantial increases in total energy costs and world energy prices. Chokepoints also leave oil tankers vulnerable to theft from pirates, terrorist attacks, shipping accidents that can lead to disastrous oil spills, and political unrest in the form of wars or hostilities.

There are seven chokepoints in the major trade routes. Disruptions to these routes could affect oil prices and add thousands of miles of transit in alternative routes. By volume of oil transit, the Strait of Hormuz, leading out of the Persian Gulf, and the Strait of Malacca, linking the Indian and Pacific Oceans, are the world's most important strategic chokepoints. 

Strait of Hormuz

Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Hormuz is the world's most important oil chokepoint because of its daily oil flow of 17 million barrels per day in 2013. Flows through the Strait of Hormuz in 2013 were about 30 percent of all seaborne-traded oil.

EIA estimates that more than 85 percent of the crude oil that moved through this chokepoint went to Asian markets, based on data from Lloyd's List Intelligence tanker tracking service.6 Japan, India, South Korea, and China are the largest destinations for oil moving through the Strait of Hormuz.

Qatar exported about 3.7 trillion cubic feet (Tcf) per year of liquefied natural gas (LNG) through the Strait of Hormuz in 2013, according to BP's Statistical Review of World Energy 2014.7 This volume accounts for more than 30 percent of global LNG trade. Kuwait imports LNG volumes that travel northward through the Strait of Hormuz.

At its narrowest point, the Strait of Hormuz is 21 miles wide, but the width of the shipping lane in either direction is only two miles wide, separated by a two-mile buffer zone. The Strait of Hormuz is deep and wide enough to handle the world's largest crude oil tankers, with about two-thirds of oil shipments carried by tankers in excess of 150,000 deadweight tons.

Most potential options to bypass Hormuz are currently not operational. Only Saudi Arabia and the United Arab Emirates (UAE) presently have pipelines able to ship crude oil outside of the Persian Gulf and have additional pipeline capacity to circumvent the Strait of Hormuz. At the end of 2013, the total available unused pipeline capacity from the two countries combined was approximately 4.3 million bbl/d.

Strait of Malacca

The Strait of Malacca, located between Indonesia, Malaysia, and Singapore, links the Indian Ocean to the South China Sea and Pacific Ocean. The Strait of Malacca is the shortest sea route between Persian Gulf suppliers and the Asian markets—notably China, Japan, South Korea, and the Pacific Rim.

Oil shipments through the Strait of Malacca supply China and Indonesia, two of the world's fastest-growing economies. It is the key chokepoint in Asia, with an estimated 15.2 million bbl/d flow in 2013, compared with 13.5 million bbl/d in 2009. Crude oil generally makes up about 90 percent of total oil flows per year, and petroleum products make up about 10 percent.

At its narrowest point in the Phillips Channel of the Singapore Strait, the Strait of Malacca is only about 1.7 miles wide, creating a natural bottleneck with potential for collisions, grounding, or oil spills. According to the International Maritime Bureau's Piracy Reporting Centre, piracy, including attempted theft and hijackings, is a threat to tankers in the Strait of Malacca, although the number of attacks has dropped since 2005 after nearby countries increased patrols in the area.

If the Strait of Malacca were blocked, nearly half of the world's fleet would be required to reroute around the Indonesian archipelago, such as through the Lombok Strait between the Indonesian islands of Bali and Lombok, or the Sunda Strait between Java and Sumatra. Rerouting would tie up global shipping capacity, adding to shipping costs and potentially having a significant impact on energy prices.

There have been several proposals to build bypass options and reduce tanker traffic through the Strait of Malacca. In particular, China and Burma (Myanmar) commissioned the Myanmar-China natural gas pipeline in 2013 that stretches from Myanmar's ports in the Bay of Bengal to the Yunnan province of China. The pipeline has a capacity of 424 billion cubic feet per year. The countries are constructing a parallel oil pipeline to serve as an alternative transport route for crude oil imports from the Middle East to potentially bypass the Strait of Malacca. The oil pipeline was set to open in late 2014 and to have a capacity of about 440,000 bbl/d, according to IHS Energy. However, political opposition in both countries to the pipeline may delay its opening until 2016.

The Strait of Malacca is also an important transit route for liquefied natural gas from Persian Gulf and African suppliers, particularly Qatar, to East Asian countries with growing LNG demand. The biggest importers of LNG in the region are Japan and South Korea.

Suez Canal/SUMED Pipeline

The Suez Canal and SUMED Pipeline are strategic routes for Persian Gulf oil and natural gas shipments to Europe and North America. These two routes combined accounted for about eight percent of the world's seaborne oil trade in 2013.

Suez Canal

The Suez Canal is located in Egypt and connects the Red Sea and Gulf of Suez with the Mediterranean Sea. In 2013, total petroleum and other liquids (crude oil and refined products) and LNG accounted for 20 percent and three percent of total Suez cargoes, measured by cargo tonnage, respectively. The Suez Canal is unable to handle Ultra Large Crude Carriers (ULCC) and fully laden Very Large Crude Carriers (VLCC) class crude oil tankers. The Suezmax was the largest ship capable of navigating through the canal until 2010 when the Suez Canal Authority extended the canal depth to 66 feet to allow more than 60 percent of all tankers to use the Suez Canal, according to the Suez Canal Authority.

In 2013, nearly 3.2 million bbl/d of total oil (crude oil and refined products) transited the Suez Canal in both directions, according to the Suez Canal Authority. This is the largest amount ever shipped through the Suez Canal. The majority of the oil was sent northbound (1.9 million bbl/d) toward European and North American markets, and the remainder was sent southbound (1.3 million bbl/d), mainly toward Asian markets.

Oil exports from Persian Gulf countries (Saudi Arabia, Iraq, Kuwait, United Arab Emirates, Iran, Oman, Qatar, and Bahrain) accounted for 79 percent of Suez Canal northbound oil flows. The largest importers of northbound oil flows through the Suez Canal in 2013 were European countries (68 percent) and the United States (16 percent). Oil exports from European countries made up the majority (66 percent) of Suez southbound oil flows, followed by North Africa (Algeria and Libya combined made up 16 percent). The largest importers of Suez southbound oil flows through the Suez Canal were Asian countries (74 percent).

Total traffic through the Suez Canal fell in 2009, and total oil flows dropped to 1.8 million bbl/d, their lowest level in recent years. The decrease in oil flows during that time reflected the collapse in world oil market demand that began in the fourth quarter of 2008, followed by OPEC production cuts (primarily from the Persian Gulf), which caused a sharp fall in regional oil trade starting in early 2009. Egypt's 2011 revolution did not have any noticeable effect on oil transit flows through the Suez Canal. Over the past few years, oil flows through the Suez Canal have increased, recovering from previous lower levels during the global economic downturn.

SUMED Pipeline

The 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline, transports crude oil through Egypt from the Red Sea to the Mediterranean Sea. The crude oil flows through two parallel pipelines that are 42 inches in diameter, with a total pipeline capacity of 2.34 million bbl/d. Oil flows north starting at the Ain Sukhna terminal along the Red Sea coast to its end point at the Sidi Kerir terminal on the Mediterranean Sea. SUMED is owned by the Arab Petroleum Pipeline Co., a joint venture between the Egyptian General Petroleum Corporation (50 percent), Saudi Aramco (15 percent), Abu Dhabi's International Petroleum Investment Company (15 percent), multiple Kuwaiti companies (15 percent), and Qatar Petroleum (5 percent).

The SUMED Pipeline is the only alternative route to transport crude oil from the Red Sea to the Mediterranean Sea if ships were unable to navigate through the Suez Canal. Closure of the Suez Canal and the SUMED Pipeline would necessitate diverting oil tankers around the southern tip of Africa, the Cape of Good Hope, adding approximately 2,700 miles to transit from Saudi Arabia to the United States, increasing both costs and shipping time, according to the U.S. Department of Transportation. According to the International Energy Agency (IEA), shipping around Africa would add 15 days of transit to Europe and 8-10 days to the United States.

Fully laden VLCCs going toward the Suez Canal also use the SUMED Pipeline for lightering. Lightering occurs when a vessel needs to reduce its weight and draft by offloading cargo to enter a restrictive waterway, such as a canal. The Suez Canal is not deep enough for a fully-laden VLCC and, therefore, a portion of the crude is offloaded at the SUMED Pipeline at the Ain Sukhna terminal. The now partially-laden VLCC goes through the Suez Canal and picks up the offloaded crude at the other end of the pipeline at the Sidi Kerir terminal.

In 2013, 1.4 million bbl/d of crude oil was transported through the SUMED Pipeline to the Mediterranean Sea, which was then loaded onto a tanker for seaborne trade. SUMED crude flows decreased over the past few years, but the decrease has been offset by more oil transiting northbound via the Suez Canal. Total oil flows via SUMED and the Suez Canal were 4.6 million bbl/d in 2013, 0.1 million bbl/d higher compared with the previous year. Total oil flows via the Suez Canal and SUMED pipeline accounted for about 8 percent of total seaborne-traded oil in 2013.

LNG flows through the Suez Canal in both directions were 1.2 Tcf in 2013, accounting for around 10 percent of total LNG traded worldwide. Southbound LNG transit mostly originates in Egypt and Algeria and is largely destined for Asian markets, while northbound transit is mostly from Qatar mainly destined for European markets. The rapid growth in LNG flows through the Suez Canal after 2008 represents the use of multiple LNG trains in Qatar in 2009-10.

LNG flows through the Suez Canal in both directions have declined from their peak of almost 2.1 Tcf in 2011. The decrease mostly reflects the fall in northbound LNG flows and is consistent with LNG import data for the United States and Europe, which show that total LNG imports into both areas decreased, particularly from Qatar. U.S. LNG imports from Qatar fell by 63 percent from 2011-2012 and again by 78 percent in 2013. The changes reflect growing domestic natural gas production in the United States, a decrease in LNG demand in some European countries, and strong competition for LNG in the global market. As a result, total Suez LNG flows as a share of total LNG traded worldwide fell to 10 percent in 2013, compared with 18 percent in 2011.

Bab el-Mandeb

The Bab el-Mandeb Strait is a chokepoint between the Horn of Africa and the Middle East, and it is a strategic link between the Mediterranean Sea and the Indian Ocean. The strait is located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea. Most exports from the Persian Gulf that transit the Suez Canal and SUMED Pipeline also pass through Bab el-Mandeb.

An estimated 3.8 million bbl/d of crude oil and refined petroleum products flowed through this waterway in 2013 toward Europe, the United States, and Asia, an increase from 2.9 million bbl/d in 2009. Oil shipped through the strait decreased by almost one-third in 2009 because of the global economic downturn and the decline in northbound oil shipments to Europe. Northbound oil shipments increased through Bab el-Mandeb Strait in 2013, and more than half of the traffic, about 2.1 million bbl/d, moved northbound to the Suez Canal and SUMED Pipeline.

The Bab el-Mandeb Strait is 18 miles wide at its narrowest point, limiting tanker traffic to two 2-mile-wide channels for inbound and outbound shipments. Closure of the Bab el-Mandeb could keep tankers from the Persian Gulf from reaching the Suez Canal or SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost. In addition, European and North African southbound oil flows could no longer take the most direct route to Asian markets via the Suez Canal and Bab el-Mandeb.

Turkish Straits

The Turkish Straits, which includes the Bosporus and Dardanelles waterways, divide Asia from Europe. The Bosporus is 17-mile waterway that connects the Black Sea with the Sea of Marmara. The Dardanelles is a 40-mile waterway that links the Sea of Marmara with the Aegean and Mediterranean Seas. Both are located in Turkey and supply Western and Southern Europe with oil from Russia and the Caspian Sea Region.

An estimated 2.9 million bbl/d flowed through the Turkish Straits in 2013. About 70 percent of this volume was crude oil and the remainder was petroleum products. These Black Sea ports are among the primary oil export routes for Russia and other Eurasian countries, including Azerbaijan and Kazakhstan.

Oil shipments through the Turkish Straits decreased from more than 3.4 million bbl/d at its peak in 2004 to 2.6 million bbl/d in 2006 as Russia shifted crude oil exports toward the Baltic ports. Traffic through the Turkish Straits increased from 2010-2011 as crude production and exports from Azerbaijan and Kazakhstan increased.

Only half a mile wide at the narrowest point, the Turkish Straits are among the world's most difficult waterways to navigate because of their sinuous geography. About 48,000 vessels transit the straits each year, making this area one of the world's busiest maritime chokepoints.

Commercial shipping has the right of free passage through the Turkish Straits in peacetime, although Turkey claims the right to impose regulations for safety and environmental purposes. Bottlenecks and heavy traffic also create problems for oil tankers in the Turkish Straits. Turkey has raised concerns over the navigational safety and environmental threats to the Turkish Straits, and the country has suggested that an alternate route could be developed between the Black Sea and the Sea of Marmara.

Panama Canal

The Panama Canal is an important route connecting the Pacific Ocean with the Caribbean Sea and the Atlantic Ocean. The Canal is 50 miles long and only 110 feet wide at its narrowest point, the Culebra Cut, at the Continental Divide. More than 13,000 vessels transited the Canal in fiscal year 2014, representing more than 200 million tons of cargo. Goods either originating from or destined for the United States accounted for 43 percent of the total shipments passing through the Panama Canal during that period.

Alternatives to the Panama Canal include the Straits of Magellan, Cape Horn, and Drake Passage at the southern tip of South America, but these routes would significantly increase transit times and costs, adding about 8,000 miles of travel.

Although petroleum and petroleum products represented 18 percent of the principal commodities that crossed through the Panama Canal, it is not a significant route for global petroleum and petroleum product transit. In 2013, 1.4 percent of total global maritime petroleum and petroleum product flows went through the Panama Canal. According to the Panama Canal Authority, 877,000 bbl/d of petroleum and petroleum products were transported through the canal in fiscal year 2014, of which 748,000 bbl/d were refined products, the remainder being crude oil. About 78 percent of total petroleum, 688,000 bbl/d, went southbound from...